The bond market just sounded the alarm on US default risks, and a 'cataclysmic' debt ceiling crisis could hit next month

• Three-month Treasury bills saw their highest yield since 2001, as debt ceiling concerns grow.
• The Treasurys would mature around when the US government would run out of money.

The bond market sounded the alarm on US default risks as the deadline for reaching a deal on lifting the debt ceiling may come sooner than expected.

On Monday, the US sold $57 billion in three-month Treasury bills — which would mature around when the government could run out of money — at a yield of 5.1%, the highest since January 2001.

That comes a week after a similar auction of three-month bills also saw lackluster demand.

Meanwhile, Congress and the White House have yet to reach any resolution concerning the debt ceiling crisis, with the government estimated to run out of money by July.

But lawmakers may have to address debt ceiling concerns months sooner than anticipated.

"In addition, the debt ceiling issue may come into focus earlier, as soon as May perhaps, once the April tax receipts are taken into account," JPMorgan said in a note Monday. "As asset prices fell across the board in 2022, tax receipts are expected to be weak, so it is reasonable to expect this may force Congress to address this sooner than initially thought. And the combination of more restrictive rates and debt ceiling stress could be cataclysmic."

The warnings came as Republican Speaker of the House Kevin McCarthy went to the New York Stock Exchange on Monday to plead his case.

He said a vote on the debt ceiling would be coming within weeks, but would be contingent on spending cuts and called on Wall Street traders to pressure the Biden administration, which has said the debt ceiling should not be used for political leverage.

"If you agree, don't sit back — join us. Join us in demanding a reasonable negotiation, a responsible debt ceiling, an agreement that brings spending under control," McCarthy said.

If Congress fails to lift the ceiling before money runs out, the nation could face catastrophic consequences, such as a default that would send markets crashing and put the economy into a tailspin.